Vertically integrated energy company Origin Energy Limited (ASX: ORG) has announced two farm-in agreements with oil and gas explorer Senex Energy Limited (ASX: SXY) over two gas blocks in the Cooper-Eromanga Basin.
The agreements will see Origin progressively invest $97 million towards an exploration program which will ultimately lead to Origin holding a 40% and 30% interest respectively in each gas block.
At Origin’s discretion a further $72 million may be committed after stage one exploration is complete, the money would go towards a pilot appraisal program which would see the company’s interest increase by a further 10% in each block.
The big winner
While the agreement will hopefully benefit both Origin and Senex shareholders, the big winner from the farm-in agreement today have been shareholders in minnow Planet Gas Limited (ASX: PGS) who saw their shares leap 68% from 1.5 cents to 2.5 cents. Planet Gas is a joint venture partner to Senex in one of the two gas blocks via a 20% interest and is a clear beneficiary in having the financial backing of the much larger Origin.
The potential to develop unconventional gas opportunities in Australia appears immense and has most of the majors including Santos Limited (ASX: STO) and AGL Energy Ltd (ASX: AGK) undertaking and planning a number of explorations and projects.
In the wake of last week’s interim results from Origin, The Australian Financial Review reports that broker Deutsche Bank has retained a “hold” rating on the stock and a price target of $14.40 – describing Origin’s outlook as “uncertain”. By midday on Monday, Origin’s shares were 0.5% higher at $14.62.
Unlike the soon to be completed AP LNG Project which can be described as a ‘game-changer’, today’s announcement while having substantial potential is unlikely to significantly change investors’ overall valuation of the energy company in the near term.